Democrats are preparing to reverse a Trump-era tax move - and it could cut taxes for America's wealthiest residents

• Democrats are ready to repeal a Trump-era policy that cut tax breaks for residents of wealthy states.
• Democrats have previously argued that capping the deduction for local taxes impacts wealthier blue states more.

Democrats are about to include a tax break in their $1.75 trillion social spending plan that will overwhelmingly benefit higher-earning Americans.

On Tuesday, Rep. Josh Gottheimer of New Jersey wrote on Twitter that the provision had been added into the plan. A Democratic aide familiar with negotiations told Insider that Democrats were eyeing a five-year tax break that runs through 2025, a development first reported by Punchbowl News.

The break would also be retroactive to this year.

The SALT deduction allows taxpayers to deduct their state and local tax totals from their federal obligation. Under Trump's 2017 tax plan, the previously unlimited deduction was capped at $10,000. That primarily impacts taxpayers in areas with high local taxes, which tend to be in wealthier blue states like New Jersey.

Trump's tax plan especially hit people with properties in multiple states, who were able to deduct their state property-tax totals in, for instance, New York City, if they had a property there as well as a nearby state like New Jersey, Pennsylvania, or Connecticut.

Revenge of the SALT Caucus

A repeal does have bipartisan support: 32 legislators from both sides of the aisle formed a "SALT Caucus" in April. Speaker of the House Nancy Pelosi has said that the Trump cap was "mean-spirited" and "politically targeted" by taking aim at wealthy residents of blue states. It also had support from Senate Majority Leader Chuck Schumer of New York.

Marc Goldwein, a budget expert at the nonpartisan Committee for a Responsible Federal Budget, projects that the five-year SALT deduction would amount to a $500 billion tax cut - with $400 billion flowing to the top 5% of households.

"It's a very good question about priorities when they're willing to put two and a half times as much into tax cuts for the rich as they are into child tax credit and the EITC expansion that mainly go to the poor and middle class," Goldwein said.

Jason Furman, a former top economist to President Barack Obama, wrote on Twitter that he guesses most Americans with a net worth of $50 to $300 million would actually get a tax cut.

"The bill would do more for the super-rich than it does for climate change, childcare or preschool," Furman wrote. "That's obscene."

Some Democrats defended the effort to repeal the cap. "This is about punishing blue state voters," Sen. Ron Wyden of Oregon, chair of the Senate Finance Committee, told Insider.

When asked about the SALT deduction as a tax for the wealthy, Sen. Cory Booker of New Jersey told Insider, "You clearly have not come to New Jersey."

"I live in a low income neighborhood," Booker added. "People are paying more than $10,000 in taxes. So what are you talking about?"

"This is a middle-class issue and it's something that's really a concern for people," he told Insider.

Not all Democrats are onboard with a repeal. Sen. Bernie Sanders of Vermont came out against it, saying it would effectively provide a tax cut to the very rich.

"At a time of massive income and wealth inequality, the last thing we should be doing is giving more tax breaks to the very rich," he wrote on Twitter. "Democrats campaigned and won on an agenda that demands that the very wealthy finally pay their fair share, not one that gives them more tax breaks."

Sanders added he was open to a compromise approach on the issue, but "won't support more tax breaks for billionaires."

Rep. Alexandria Ocasio-Cortez has said that she thinks "it's just a giveaway to the rich," breaking from some of her fellow New York representatives. She wrote on Twitter that Congress shouldn't endorse a "100% repeal."

Democrats are using the party-line reconciliation process to approve the plan over united Republican opposition. Its afforded them very little room to maneuver given they can only spare three votes in the House and zero in the Senate to mold President Joe Biden's economic plans into law.